European recession slowing global economy: OECD

The euro zone debt crisis that has pushed key European countries into a recession is having a worldwide impact and is slowing global economy, the Organiation for Economic Cooperation and Development (OECD) said in its Interim Economic Assessment.

The assessment, presented in Paris by chief economist Pier Carlo Padoan, says that the Group of Seven (G7) major industrialised countries are expected to grow at an annualised rate of just 0.3 per cent in the third quarter of 2012 and by 1.1 per cent in the fourth.

''The continuing euro area crisis is dampening global confidence, weakening trade and employment and slowing economic growth for OECD and non-OECD countries alike,'' Padoan warned.

''Our forecast shows that the economic outlook has weakened significantly since last spring,'' Padoan said. ''The slowdown will persist if leaders fail to address the main cause of this deterioration, which is the continuing crisis in the euro area.''

The OECD projects that the euro area's three largest economies – Germany, France and Italy – will shrink at an annualised rate of 1 per cent on average during the third quarter and at 0.7 per cent in the fourth.

Seen individually, the German economy is expected to contract at an annualised rate of 0.5 per cent in the third quarter and at 0.8 per cent in the fourth.

The French outlook is slightly better, with contraction at an annualised rate of 0.4 per cent in the third quarter followed by a slight pick up in growth at 0.2 per cent in the fourth.

In Italy, the deep recession will continue with contraction at an annualised rate of 2.9 per cent in the third quarter and 1.4 per cent in the fourth.

The weak growth outlook is expected to push unemployment beyond today's already high levels. ''Resolving the euro area's banking, fiscal and competitiveness problems is still the key to recovery,'' Padoan said.
    
In the United States, which is already affected by the euro area slowdown, growth is nonetheless projected at an annualised rate of 2 per cent in the third quarter and 2.4 per cent in the fourth.

Canada is set to grow at a rate of 1.3 per cent during the third quarter and 1.9 per cent during the fourth.

The Japanese economy is projected to contract at an annualised rate of 2.3 per cent during the third quarter and hover around a zero growth rate in the fourth.

''A number of downside risks threaten the outlook, including the potential for further increases to already high oil prices, excessive fiscal contraction, notably in the United States in 2013, and further declines in consumer confidence linked to persistent unemployment,'' Padoan said.

The global economy has weakened since the spring, led by developments in the euro area where recession is again taking hold. Economies both inside and outside the OECD area have been adversely affected by the euro area crisis through trade and confidence channels, the report said.

Ongoing balance-sheet adjustments and renewed declines in consumer confidence have kept household demand soft in many countries. Business investment growth has also been slowing, except in Japan where post-disaster reconstruction continues. In the euro area, weakness in the periphery is spilling over to the core.

According to forward-looking indicators, the loss of momentum at the G7 level may persist through the later half of this year, with the recession in the euro area and associated trade and confidence headwinds enduring. The United States is an exception with comparatively stronger growth reflecting inter alia progress in balance-sheet adjustment and improving housing market conditions.

With the euro area crisis still the most important risk for the global economy, further policy action is needed to instill more confidence in the monetary union.